The government will inject up to HK$120 million of public funds to subsidise any fare increase when contracts to run six outlying islands ferry routes are renewed next year.

Officials said the move would help stabilise fares, under pressure because of rising costs and the dwindling population of the islands, and ensure the 41,000 islanders did not lose their only transport link to town.

The Transport and Housing Bureau denied the move breached its long-standing principle of not paying direct subsidies to public transport operators, but it will in effect increase the ferry operators' financial dependence on the government.

Under the policy announced yesterday, the government will subsidise half the fare increase after general inflation is taken into account.

For example, if a HK$15 fare rose by HK$1.50, or 10 per cent, the passenger would pay the portion of the increase caused by the general inflation rate (say, 3 per cent) plus half the remainder of the increase (half of 7 per cent), with the government paying the other half - resulting in a rise for the passenger of about HK$1.

Government economists have projected an average inflation rate of 2.5 per cent for the year.

The three-year licences to run the six routes expire in June next year.

Companies bidding to operate them - the tenders do not open until next year - will be required to narrow the gap between the price charged on weekdays and holidays from up to 40 per cent at present to within 20 per cent.

Four of the six routes had to be put out for tendering a second time in 2008 because bidders proposed a fare rise so high that the government had to offer some subsidies to push down the increase.

A bureau spokeswoman said the new policy was not much different from past practice, as the HK$120 million subsidy would be used to cover the operators' repair and maintenance expenses.

'Operators can get the subsidy by claiming on the actual amount they spend on repair and maintenance of their facilities and vessels,' she said.

The government has poured tens million of dollars over the years into paying the operators' bills for pier maintenance, cleaning, water and electricity, and waiving all vessel- related fees. It even spent a one-off amount of HK$2 million in 2008 to encourage organisations to hold activities on the islands to encourage patronage.

But Richard Tsoi Yiu-cheong of the Coalition to Monitor Public Transport and Utilities said it was obvious that the subsidy was a kind of direct sponsorship.

'When operators propose a fare increase, they don't just look at their maintenance costs, but also at fuel expenses and wages,' he said.

The spokeswoman said the bureau strived to strike the best balance between the principal of non-intervention in private business and the interests of island residents. 'Unlike other commuters, islanders have no other option but ferries, and without assistance, this business is simply financially unviable,' she said.

New World First Ferry, which operates three of the routes, said it had accumulated a deficit of HK$20 million since 2000, while Hong Kong and Kowloon Ferry, operator of the other three, said it made a small profit last year due to lower fuel costs.

However, the cost of fuel has almost doubled since early last year and officials expect it to rise further in the coming months.

Lawmakers and the community generally backed the plan, although Miriam Lau Kin-yee of the Liberal Party criticised the government for not rushing through a plan to add a floor to the pier building to boost the operators' rental income. If it had done so, it might not need to spend this HK$120 million, she said.

The government said the plan required approval of the Harbourfront Enhancement Committee and the Town Planning Board and could take years to complete.